Should We "Means Test" Your Auto Insurance? Then Why Do It For Social Security?

Picture this: You're driving down the road one rainy day as someone bearing an uncanny resemblance to Mitt Romney approaches you from the other direction in a Cadillac [1]. One of you hydroplanes and there's a collision.

After both of you have confirmed that nobody's hurt - and that the dog and his carrier are still securely fastened to the roof - you call your insurance companies. Soon the claims adjusters show up in their little cars - you know, the ones with the insurance company logo on the door. (I know that doesn't happen in real life. This is a story.)

Your claims adjuster punches some figures into an electronic device, then smiles and says "You're all set! The check will be mailed out tomorrow." So far, so good.

But then you overhear the other driver arguing with his adjuster: "What do you mean, my claim is rejected! The headlight is cracked. On a car like this that's going to run me six grand, easy! Why won't you guys honor my claim? I paid my premiums just like everybody else."

"I'm sorry, sir," the adjuster replies. "At your income level you're not entitled to file a claim. But we sure do thank you for all those payments. Keep 'em coming - and have a good day!"

If that scenario doesn't make sense to you, why do it for Social Security?

And yet that's exactly what conservatives and their media enablers keep proposing. They insist that Social Security beneficiaries should be submitted to a "means test" before they can receive the benefits they've paid for all their lives. They're pushing the idea for three reasons: The first is to convince people that Social Security isn't really a social insurance program, or that they've earned their benefits. They'd rather have us think that it's a generous government "entitlement" we don't deserve. The second is to add another costly bureaucratic layer onto the program, which as of this writing is one of the most cost-efficient administrative systems in government.

And the third reason is a plain old bait and switch: If you study the "means testing" proposals it quickly becomes clear they're not targeting "millionaires" at all. The Concord Coalition, a right-wing group that first pushed this idea, thinks that the "means-tested" cuts should begin with people who have earned more than twenty thousand dollars per year during their working lives.

Twenty thousand dollars.

Funny thing: The people who express outrage over millionaires collecting Social Security are the very same people who keep lavishing tax cuts on them. And if you try to stop them they cry "class warfare"! There can't be any worse example of "class warfare" that demonizing some old well-to-do couple as they're going to the Post Office to pick up their checks.

If you're so outraged, folks, why not just lift the cap on payroll taxes and restore the program too 100-percent actuarial balance for the next seventy-five years? (In actuary-speak, "seventy-five years" has roughly the same meaning as "eternity.")

The answer is, because they're not really outraged at all.

As a recent Kaiser Family Foundation brief [2]confirms, only a tiny fraction of upcoming retirees fit the "don't need Social Security" profile anyway. And, as the paper reaffirms, most of them depend on Social Security, and will use a significant portion of their Social Security income for medical care.

("Hey!" Our Romney look-alike is saying to his adjuster. "I think I hurt my neck! Who's gonna cover my medical bills?")

Cuts to Social Security - whether they're in the form of means-testing or the Ryan/Romney proposals to raise the eligibility age and reduce cost-of-living benefits - will hurt most seniors. They'll cause the most pain to elderly and disabled women and minorities.

And yet the ludicrous idea persists that Social Security is some sort of welfare program. "By all rights," writes financial columnist Robert Samuelson [3], "we should ask: Who among the elderly need benefits? How much? At what age?"

Right - and Geico's lizard people should have the right to pore through your personal financial records whenever you file a claim.

There's no time here for dissecting all the foolishness and dishonesty in Samuelson's piece, which has already been addressed by Lawrence Hunter and Dean Baker [4]. We'll just point out that Samuelson doesn't even understand basic insurance financing. His figures lack internal coherence for anyone who does.

Samuelson repeats this bit of silliness: "The trouble is that contributions weren’t saved. They went to past beneficiaries. The $2.6 trillion in the Social Security trust fund at year-end 2010 sounds like a lot but equals slightly more than three years of benefits."

No, their contributions were saved. Saying the Trust Fund's account equals "three years of benefits" overlooks the fact that most baby boom retirees are still paying into the fund, and shows an unawareness of the way reserving and cash flows work in an insurance program. (Funny thing - Samuelson doesn't even mention the idea of lifting the payroll tax cap.)

You know it's a phony argument whenever someone says we should cut benefits to protect young people. Every cut on the table, including means-testing, would hit today's young people a lot harder than they would hit older folks.

Samuelson and the other means-testers don't like to point that out. Instead they fall back on a argument that's the equivalent of saying "No fair! The guy who had the auto accident got way more money than I did!" That's what it means to pool risk. It's one of the many ways we act together within the social economy to serve the greater good. The right question to ask about any insurance program isn't isn't "Who's ripping off whom?" It's "Is the program fair, effectively, and actuarially sound?"

The answer for Social Security is "yes," "yes," and "yes - with a minor adjustment." But they're not interested in that.

Picture this: Someday you're in an auto accident and you find out you're not covered. You're not covered for your car, you're not covered for you're medical bills, and you're not covered for your living expenses while you're laid up with your injuries. And when you ask why, you get a lecture on getting over your "entitlement mentality."

Now picture that happening when it's time to retire - because if these people have their way, it will.

(There's more about the means-testing scam here [5].)